State pondering ending car tax cap

HARTFORD — Car owners in Naugatuck and other high-tax towns could end up paying a lot more in the coming year or two.

Faced with a budget crisis, state leaders are contemplating the state’s two-year-old cap on car taxes either in the fiscal year beginning July 1, or the following fiscal year.

For two years, the cap has ensured Connecticut motor vehicle owners pay no more than 37 mills in local taxes on their car taxes. A portion off the state’s sales tax was used to reimburse affected municipalities.

Gov. Dannel Malloy originally proposed setting aside $77.9 million annually for the 2018 and 2019 fiscal years to compensate four dozen cities and towns affected. But now Malloy is proposing to hold onto the sales tax money to help close a two-year, $5 billion deficit.

Republican lawmakers have made the same recommendation. House and Senate Democrats propose to maintain the motor vehicle tax program.

This has left towns and cities in a budgeting lurch as Malloy and General Assembly leaders negotiate a two-year budget plan.

The revenue sharing program was enacted two years ago to provide relief from property taxes. Democrats still consider its enactment a major policy achievement.

One component of the program placed a limit on local property taxes on motor vehicles. Towns and cities that have tax rates that exceed the statutory limit get offsetting grants.

Another component of the revenue sharing program directed grants to other municipalities that have tax rates below the capped rate.

The cap was originally intended to set rates even lower, and more quickly. But lawmakers have slowed the cap due to budget problems. Current law would sink the rate to 32 mills next budget year, but even Democrats want to continue to hold it at 37 mills.

In Naugatuck, Mayor N. Warren “Pete” Hess III said he’ll shortly have tax bills printed using the 37 mill cap assumption. He plans to include a disclaimer, however, that bills could change depending on state aid.

Naugatuck’s 2017-18 budget is set at about $120.4 million. Overall, the budget is decreasing spending by $492,296 from this fiscal year’s budget. However, the mill rate will increase 0.88 mills, or about 1.8 percent, to 48.55 mills due to a decline in revenue. A mill is $1 for every $1,000 of assessed property value.

The borough government actually loses about $100,000 annually, even with state reimbursement, due to the cap on car taxes, Hess said. Even so, the program saves locals lots of money and is very popular.

“We can live with it and the taxpayers love it, so I would rather not change it,” Hess said.